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| January 27, 2010: Volume expectations from the sale of life settlement securities in the US set to rise... |
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Volume expectations from life settlements transactions is expected to reach $13 billion in face amount annually over the next three years. This, according to research from Aite Group. Life settlements in essence 'convert' a life insurance policy contract to a security. The rights under the policy contract are sold to third parties who previously had no insurable interest in the life insured.
The volume expectations are a marked increase from the estimated scale of the business during 2009. This, as the capital necessary to buy life insurance policies in the secondary market became constrained and more policies were available for sale. The research firm estimated that in 2009, life insurance policies with a combined death benefit valued at $8 billion were settled (converted to securities). In typical cases, the insured individuals who sold their policies over the secondary market received offers equivalent to roughly 18% to 20% of their death benefits. While policyholders received $1.1 billion in payouts last year from selling their policies, providers raked in $160 million, while settlement brokers earned $240 million. Agents in the deals made over $96 million. Going forward, the life settlements securities industry has a number of trump cards in its favour: - Aging boomers may want to sell their policies to help cover other financial needs — such as long-term care. - Institutional investors who buy up settlements can benefit from investments that aren’t correlated with the equity and credit markets. Challenges also exist for the growing life settlements securities industry. The rates of return and the amount a client receives for the sale of his or her policy depend on life expectancy and the availability of capital — as well as the interest — among institutional buyers, according to Aite. At present, the sale of life insurance policy contracts to persons or entities having no insurable interest, is not legal in many Canadian provinces. Regardless, at least as it would appear, the regulators in general apparently and regretfully tend to turn a blind eye. E.&O.E. |
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